Great Panther Plots Growth Strategy

Investment in new equipment, plant upgrades and an increased drilling budget along with new underground mine development are all part of Great Panther Resources’ (GPR-T, GPRLF-O) three-year growth strategy in Mexico.

Capital spending for the initiative is expected to reach roughly $22 million over the next three years, with an additional $14 million spent on exploration. Those sums will be paid for mostly out of internal funds and cash flow.

Underground mine development is planned to exceed 10 km at the company’s Guanajuato mine, 380 km northwest of Mexico City, and 5.5 km at the Topia mine, 350 km northwest of the city of Durango.

Plant throughput is expected to approach capacities of 1,200 tonnes per day at Guanajuato (up from about 500 tonnes per day) and 220 tonnes per day (up from 170 tonnes per day) at Topia.

The Vancouver-based company believes that annual production at the two mines will climb to about 2.66 million oz. silver, 12,600 oz. gold, 1,680 tonnes of lead and 1,540 tonnes of zinc by 2012. Silver- equivalent ounces should reach 3.8 million.

In addition, Great Panther intends to build its resource base at the Guanajuato and Topia operations to support a minimum 10- year mine life.

Using metal prices of US$15 per oz. silver, US$900 per oz. gold, US80¢ per lb. lead and US75¢ per lb. zinc, the company projects annual revenues will exceed $50 million by 2012.

“For the first four years after acquiring the mines, we put a lot of effort into rehabilitating them, refurbishing them, and retraining the workforce,” Robert Archer, the company’s chief executive said in an interview. “Up until last year, the company was in growth mode and was putting a lot of funds into doing that.”

But when the financial crisis hit and metal prices and revenues started to plummet, Archer says Great Panther’s management refocused its energies on trimming costs. The first thing it did was change its smelter contract, significantly reducing costs.

“Both of our mines produce concentrates and we had been dealing with (Industrias) Penoles,” Archer explains. “We now ship Guanajuato concentrate to the Grupo Mexico smelter in San Luis Potosi and sell our Topia concentrates (lead and zinc) to Louis Dreyfus, a metal trader.”

For the first time in its history, the company turned cash flow positive in the first quarter of the year and has remained so. “This will be the third quarter in a row that we’ve done that,” he says.

“You could say that in the first four years (2004-08) we were focused on growth and over the last year we’ve focused on profitability. Now that we’re on a firm footing, we’ll be focused on profitable growth.”

Archer expects cash operating costs will continue to fall — from the current US$6 per oz. silver net of byproducts to about US$4 per oz. silver net of byproduct credits.

At Guanajuato, Great Panther is focusing on three principal mines that were developed around the 1600s. The shafts were dug by hand and finished in the early 1800s.

The three principal mines (Valenciana, Cata and Rayas) are situated on the main Veta Madre (Mother Lode) structure that trends northwest-southeast through the district for about 25 km. But silver-gold mineralization can also be found elsewhere in the mine complex parallel to the Veta Madre and as large stockwork bodies on both sides of the structure.

Great Panther plans to concentrate on the deep extensions of the Rayas Clavo, the Valenciana mine, the Cata Clavo and the Guanajuatito zone and from new targets in between the major orebodies along the 4.2-km trend of the Veta Madre structure.

The company recently announced that it had found three new zones of silver-gold mineralization within and adjacent to the areas it is already mining.

The company started production at Guanajuato in June 2006. The mine, on the outskirts of the capital city of Guanajuato, is situated in one of the world’s most prolific silver districts.

Silver was discovered in the district in 1548 and estimates of historic production range from 700 million oz. to 1.5 billion oz. silver and between 4 million oz. and 7 million oz. gold.

The main claim block covers more than 4 km of strike length along the Veta Madre and contains 25 shafts, four internal shafts and more than 100 km of underground workings. Each of the three mines has a central shaft and the ore is hoisted up the central Cata shaft where the mill that services the mine is located.

“The Valenciana mine was once said to be the richest silver mine in the world,” the company states on its website. “Bonanza-style mineralization in the Veta Madre structure in this historic mine was often considered as ‘direct-shipping ore’ (to the smelter) as the grades exceed those of the concentrates produced from average ore in the flotation plant.”

At Topia, production will be increased on several of the 10 veins that are being developed. The Argentina, Rosario and San Gregorio veins will provide the largest increases in tonnage.

An estimated total of 65,000 metres of exploration drilling will concentrate on defining resources, looking for vein extensions and testing new targets. Based upon previous experience, the discovery cost per ounce is expected to be about US50¢ or less.

The Topia silver-lead-zinc property, in west-central Durango state, lies in the heart of the Topia mining district, one of the oldest in Mexico with silver discoveries dating to 1538.

Great Panther estimates that the district produced a total of about 30 million oz. silver. The production figures recorded from 1952 until 1999 (when Penoles operated the mine) exceed 15 million oz. silver, 18,500 oz. gold, 48,000 tonnes of lead and 44,500 tonnes of zinc.

Topia has a measured and indicated resource of 173,100 tonnes grading 552 grams silver per tonne, 0.99 gram gold, 5.58% lead and 4.83% zinc. In the inferred category, Topia contains an estimated 174,560 tonnes grading 633 grams silver, 1.03 grams gold, 5.1% lead and 3.84% zinc.

The estimated total metal content of the resource is about 3.95 million oz. of silver, 7,720 oz. gold, 26 million lbs. lead and 22.8 million lbs. zinc.

Great Panther refurbished the Topia mill in the second half of 2005, began production in January 2006, and now the plant operates at about 170 tonnes per day, including some custom milling for local small miners.

Metal production in the second quarter reached 112,616 oz. silver, 125 oz. gold; 513,338 lbs. lead and 594,677 lbs. zinc.

Apart from Guanajuato and Topia, plans are under way to dewater, explore and develop the San Ignacio mine, which has been on care and maintenance since 2001.

San Ignacio is a standalone operation in the La Luz district, about 20 km by road from the Guanajuato plant. Surface drilling at San Ignacio and on other targets within the La Luz trend will start as soon as specific targets are identified and permits are in place.

On other fronts, but also in Mexico, Great Panther is terminating its option on the Mapimi project in the state of Durango due to results from a scoping study that indicated low grades and the high capital cost of building a new plant.

“With US$2.2 million in cash payments due over the next 12 months just to maintain the Mapimi option, plus ongoing exploration costs, the allocation of those funds to delineating resources at the existing mines is deemed to be a better use of the company’s funds,” the company’s management stated in a release.

At presstime, Great Panther traded at 78¢ per share. The company has a 52-week trading range of 18¢-$1.25 and 87.1 million shares outstanding.